European equity markets bounced strongly Monday, following a week of downbeat sessions. In fact, European stock markets had their worst week since June, as investors became nervous about the U.S. “fiscal cliff”, what’ll happen next for Greece and Spain in the euro-zone debt crisis and as political tensions in the Middle East worryingly increased.

Our first taste of today’s broker notes comes with drinks maker Diageo which has been upgraded by Barclays. The brokerage noted that the London-based maker of Johnnie Walker Scotch whisky and Smirnoff vodka has an increasing presence in high-growth emerging markets. It also likes the proposed acquisition of India’s United Spirits.

“This strength is not currently reflected in valuation, nor do we think any value is ascribed to the increased likelihood of the liberalization of India’s imported spirits tax regime,” said the brokerage.

Goldman Sachs downgraded Lloyds Banking Group to “neutral” from “buy” and raised Barclays to “buy” from “neutral”. On Lloyds, the brokerage pointed out the recent rally in the share price, the stock having risen from 25.36p in May to 44.69p in today’s trading. Its analysts said they believe that there is now more balance between risk and reward. Goldman Sachs continues to view the group as well placed to generate attractive returns and sees substantial longer-term upside in the stock.

European stocks were on the front foot Tuesday, with banks leading the advance as they rebound from recent losses, although worries about Spain were never far from investors’ minds.

Here is a selection of the day’s equity ratings changes.

Deutsche Bank downgraded Repsol, on news that Argentina plans to seize control of Repsol YPF, which is currently majority owned by Repsol.

Deutsche remains positive on the underlying Repsol story, but said the downgrade reflects the valuation and near-term uncertainty. Deutsche’s bias is towards the upside case, as it believes there will be some level of compensation and given the undiminished attraction of Repsol’s exploration portfolio.

Meanwhile, Exane BNP Paribas took a look at media stocks. It upgraded ITV…

Is $3.4 billion too high a price to pay for a company, whose sales were just under $206 million last year?

“It’s quite a big multiple and a premium over the stock price,” said Paul Hamerman, analyst at Forrester Research of the more than 16 times revenue SAP paid to acquire SuccessFactors, which makes . “The risk I think is primarily on the financial side, will it be accretive?” he said.

It appears other traders may agree, as SAP’s shares on the New York Stock Exchange contracted by 1.5% in pre-trading today. Co-CEO Bill McDermott made the case in an interview with The Wall Street Journal on Sunday. Mr. McDermott argued that SAP was getting the best cloud asset on the market for what he described as a middle range price.

While SuccessFactors may not have much revenue, he adds that it’s growing fast and highly profitable. By comparison, Mr. McDermott said the finances of many other online software vendors are built on a “house of cards.”

SAP’s co-boss Bill McDermott can’t hide where he is from: the States. Being in the boardroom of a global company based in Walldorf, a hicksville town in South-West Germany, he doesn’t go easy with superlatives when addressing the media.

The problem is that Nokia can’t bring innovative high-end products to market in a timely fashion. At present, the Finnish mobile-phone maker is failing to fight back Apple’s onslaught, but if it weren’t Apple Inc., it would be some other nimble company that would be whipping Nokia in the premium segment.

In the past decade, Nokia has spent nearly €36 billion, 10% of its revenue earned during the period, on R&D. On top of that, there has been about €7 billion of acquisitions. The total spend, about €43 billion, is roughly equivalent to the enterprise value of Qualcomm Inc.

Nolia phones on display

This vast sum has not bought Nokia victory in the premium-phone game. Nor has a series of executive reshuffles and reorganizations, the latest announced this week, changed things much.

It’s time to try a different path. Where internal development and acquisitions have failed, a more expansive and far reaching attitude toward partnerships could succeed.

Much of Nokia’s strong growth came in an era during which hardware innovation on its own could secure high margins, and more importantly, when hardware and software were considered independent. The premium-handheld-device business now is about which device can run software applications most smoothly — a matter of hardware-software integration. Nokia has not been able to make the transition.

The problems are not new. Analysts have been pointing out that Nokia’s smartphone portfolio has lagged the competition for at least five years. Longtime Nokia watchers will remember the company’s struggles in bringing enterprise email applications to market.

Nokia did not create this crisis, and plenty of other companies are in it. It’s just that Nokia’s struggles have been more conspicuous in the face of the fast replacement cycles and innovation pace of the mobile-phone business. Finding oneself in a position of weakness by solely focusing on either hardware or software could hurt companies such as Hewlett-Packard, Microsoft, Dell Inc. and Oracle as well.

Another day, another $35 million. Apple Inc. is now in the enviable, but difficult, position of having an expected year-end net cash pile of around $48 billion, if Macquarie analysts are to be believed.

AP

Apple’s recently launched iPad

But the market has set such a high value on Apple’s management that handing the cash back may not be the answer investors are looking for. Using its paper for large scale M&A would be no easy sell either.

With a forecast operating margin of around 29% for this year, the textbook response would be to reinvest the cash in the business. The problem here is that that the forecast year-end net cash figure is around the same size as the current equity base–and 14 times the net PP&E–so it’s very hard in practice for Apple to put all its cash to work internally.

Apple could therefore look at two other routes: M&A or handing cash back to shareholders. (We assume that Apple would not choose to buy back shares, given its market capitalization of around five times book value.)

Looking first at the M&A option, the amount of net cash it will have at year end means it could buy a bolt-on asset, such as, say, Skype Technologies, without breaking into a sweat. The problem here is that the returns on equity on purchases are unlikely to be equal to Apple’s own ROE, and so will be dilutive.